This story first appeared in DNA Money edition on Tuesday, May 7, 2013.
Consumer goods companies such as GlaxoSmithKline Consumer Healthcare, Bajaj Corp and Dabur, which cater to the $13.1 billion (Rs71,000 crore) national market, are sharpening focus on rural distribution in anticipation of higher spends.
Factors like this being a pre-general election fiscal year, expectation of normal monsoon and government initiatives like high minimum support price for agricultural produce, aimed at passing on subsidies to rural India, are all expected to increase disposable incomes and hence spends in the hinterland, which accounts for 67% (or Rs47,150 crore) of FMCG sales.
According to Ramakrishnan Subramanian, director-finance, GlaxoSmithKline Consumer, demand and response from the rural market are up. “We are targeting to reach 10,000 villages this fiscal. Our intention is to reach 50,000 villages by 2016,” he told an earnings call.
According to ruralmarketing.org, India has 6.27 lakh villages in all; and business in rural India grew about 11% on average annually over the last decade. FMCG sales are expected to grow toward $33 billion by 2015, of which $22.1 billion will be contributed by rural areas.
Harminder Sahni, founder and MD of Wazir Advisors, said, “Tractor sales last quarter were good, indicating strong rural spend. This is driving consumer goods companies to go after the rural consumers in a focused manner.”
Specialist firms are helping consumer goods makers in this regard. For instance, Mumbai-based RW Promotions works with a host of consumer goods companies in covering 2-3 villages on a daily basis.
S Venkatesh, director, RW Promotions, said, “The rural distribution push is all about tapping aspirations. As a result, pack sizes and prices are being tweaked to make the products more attractive and affordable for villagers. Though market response varies from product to product, sales every day average upwards of Rs3,000 per village.”
Distribution, therefore, has emerged as a key driver of demand. For instance, Bajaj Corp, maker of haircare products, has been driving rural distribution through van operations in states where its enjoys a high market share.
“We have close to 150 vans covering 9,000 villages on a monthly basis,” said Sumit Malhotra, MD of Bajaj Corp. The ‘drive’ has helped deepen the penetration of Bajaj Almond Drops hair oil to 27 lakh retail outlets across India. “Almost 40% of our value sales are coming from rural markets,” he said.
After creating a strong distribution network last year, Dabur India, maker of fruit juices, wellness products, oral, skin and haircare, initiated ‘Project Double’ wherein it not only doubled its direct reach from 14,865 villages to 30,091 but also improved the quality of coverage.
This meant that even villages with a population of no more than 3,000 each across ten states, representing 72-75% of the rural FMCG potential, now have access to Dabur products.